How We Do It: IRS Summons Withdrawn, Prosecution Declined

Introduction 

When a taxpayer steps forward to correct past mistakes through the IRS’s Voluntary Disclosure Program (VDP), the IRS is supposed to reward that honesty—not punish it. Recently, we successfully intervened when the IRS issued an unnecessary and improper summons to one of our clients after he had already been accepted into the VDP program and was fully cooperating with IRS requests for information.

Background: Client Accepted Into the IRS Voluntary Disclosure Program

Our client, who operated a construction company but failed to pay employee trust funds over a several year period voluntarily entered the VDP, a long-standing IRS program for individuals who want to come into compliance and avoid criminal prosecution by fully disclosing past tax deficiencies.

As set forth in the IRS Internal Revenue Manual (“IRM”), the VDP “is a long-standing practice of the IRS that provides taxpayers with criminal exposure a means to come into tax compliance and potentially avoid criminal prosecution,” IRM 38.3.1.3.1(1); IRM 9.5.11.9(1), and is “a compliance option for taxpayers who have committed tax or tax-related crimes and have criminal exposure due to their willful violation of the law.” IRM 38.3.1.3.1(2); IRM 9.5.11.9(2).

We formally applied for pre-clearance under IRS Form 1447-Part I, were accepted into the Program, and then submitted the full VDP disclosure package. The IRS confirmed that his disclosure had been preliminarily accepted as meeting the timeliness requirements of § 9.5.11.9(4), meaning it was submitted before any civil or criminal investigation began.

Throughout 2024, our client—through counsel—produced every document the IRS requested: including Forms 1120 and all related forms and schedules for disclosure years 2019, 2020, 2021 and 2022, general ledgers, bank receipts, documentation supporting deductions, payroll records, W-4.W-2 and names of all employees. We followed the program instructions exactly as required and produced the documentation.

The Problem: IRS Criminal Investigation Issued a Summons Anyway

Despite the IRS’s own manuals stating that summonses should not be issued when a taxpayer is voluntarily providing information, an IRS Criminal Investigation Special Agent issued a sweeping third-party summons to the client’s bank seeking years’ worth of financial information. The summons was improper for several reasons:

• The IRS already possessed most of the information through the VDP disclosures.

• The IRS Manual instructs agents not to issue summonses when taxpayers are cooperating. See IRM 5.17.6.1.1 (providing that, as part of program goals, “[s]ummonses are used to secure desired records, testimony, or other information when the taxpayer or other witness will not produce them voluntarily”).

• The summons itself contained facial defects—including contradictory issue and appearance dates.

We immediately contacted the issuing Special Agent, who initially was unaware the taxpayer was in the VDP—despite the IRS’s own rules requiring agents to check for VDP participation before opening an investigation. Even after confirming his VDP participation, the IRS refused to withdraw the summons to our client’s bank, providing no explanation.

Our Response: We Moved to Quash the IRS Summons in Federal Court

We headed up a team of lawyers who moved in the U.S. District Court to quash the summons. The motion argued:

• The summons violated IRS procedures.

• It sought information the IRS already had.

• It undermined the very purpose of the Voluntary Disclosure Program.

• It constituted an abuse of process and appeared designed to pressure or harass the taxpayer.

Result: IRS Withdraws Summons and Terminates Criminal Investigation

After our motion was filed, the IRS withdrew the summons. Several months later, the IRS formally notified our client that he was no longer the subject of a criminal tax investigation.

The IRS ultimately accepted all materials through the VDP process—the path our client had chosen from the start.

What This Means for Taxpayers

This case highlights a critical point: Even when taxpayers act in good faith, government agencies sometimes fail to follow their own rules. Knowing your rights—and having counsel who understands the IRS’s procedures—is essential.

For clients seeking to correct past tax issues, the Voluntary Disclosure Program remains a powerful tool. At Levitt & Kaizer we insist that our clients be treated fairly, their disclosures are respected, and their rights are protected at every stage.

If you or your business are considering a voluntary disclosure or are facing IRS scrutiny, we can help guide you safely through the process.

Nicholas Kaizer

Levitt & Kaizer

(212) 480-4000